Africa: Pushing Land Deals

May 3, 2012
Source: 
Africa Focus

AfricaFocus Bulletin
(Reposted from sources cited below)

Editor's Note

"Whereas WBG's [the World Bank Group's] mandate is to 'reduce poverty and improve living standards through sustainable development and investment in people,' its work largely strays from this mission in that, by promoting investor access to land, it actually tends to threaten rather than improve food security and local livelihoods in developing countries." - The Oakland Institute

There are undoubtedly many forces pushing increased foreign investment in agricultural land in Africa, from the investors themselves to government officials believing in rapid progress for large-scale agriculture and foreign technology to officials as well as private interests in the countries themselves profiting legally or illegally from such deals. Among those fueling the phenomenon, either by direct loans or, more often, by advisory projects pushing "investment-friendly" environments, is the World Bank Group, notably the International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA).

While some critics say that all such large-scale deals provide little or no benefit for small-scale farmers whose land is appropriated or affected by such deals, even those international agencies promoting "Responsible Agricultural Investment" acknowledge that "weak governance" in many countries allows significant damage to the rights of land owners and other land users, as well as to the environment.

Thus there has been a proliferation of international effects to formulate international standards to curb abuses, and, in the hopes of some, to ensure that such investments not only benefit investors and macroeconomic growth, but also avoid damages to farmers' rights and the environment.

These include "Principles for Responsible Agricultural Investment that Respects Rights, Livelihoods and Resources: A discussion note prepared by FAO, IFAD, the UNCTAD Secretariat and the World Bank Group to contribute to an ongoing global dialogue (http://www.unctad.org/en/docs/ciicrp3_en.pdf), the International Finance Corporation's "Performance Standard 5: Land Acquisition and Involuntary Resettlement" (http://www.ifc.org/sustainability), and most recently, in March this year, the FAO's "Voluntary Guidelines on the Responsible Governance of Tenure of Land, Fisheries and Forests in the Context of National Food Security," (http://www.fao.org/nr/tenure/voluntary-guidelines/en/).

While there has been much debate about such guidelines, including strong critique from civil society organizations, what is most noticeable to a non-specialist is that none of the official agencies seem as yet to have incorporated any of these standards into evaluating their own project financing or policy advice to countries. The evidence from critical non-governmental organizations and scholars, however, indicates that the agencies have most often uncritically pushed investment and not insisted on compliance even with their own performance standards. This is surely an issue that incoming World Bank President Jim Yong Kim should put on the agenda on the Bank's own Independent Evaluation Group, which has often published incisive critiques of Bank programs.

This AfricaFocus Bulletin contains excerpts from a briefing from The Oakland Institute, examining how World Bank Group advisory programs have helped fuel large-scale land deals in Africa, while neglecting to apply their own performance standards to prevent, monitor, or evaluate abuses.

Another AfricaFocus Bulletin sent out today by e-mail, and available on the web at http://www.africafocus.org/docs12/sl1205.php, has several documents on the case of land deals in Sierra Leone, including the communique from a conference in April of affected land owners and land users.

For links to additional sources, see that bulletin as well three AfricaFocus Bulletins on the topic in 2010, at http://www.africafocus.org/agexp.php

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Understanding Land Investment Deals in Africa: The Role of the World Bank Group

Land Deal Brief | December 2011

The Oakland Institute

http://www.oaklandinstitute.org

[Full formatted brief, including footnotes, available at http://tinyurl.com/brzs9jm]

Overview

The World Bank Group (WBG) promotes large-scale land investment in developing countries as a "win-win" situation where investors profit and "host" nations benefit from economic development, improved agricultural infrastructure, and employment opportunities.

Since the 2008 food and financial crises, the number of land investment deals in developing countries has skyrocketed, particularly in Sub-Saharan Africa. Compared with an average annual expansion of global agricultural land of less than 4 million hectares before 2008, nearly 60 million hectares were acquired in 2009 alone. Many have called for investigation into this trend, arguing that the ceding of such substantial amounts of land to investors threatens local food security, land rights, and poses a host of other social and environmental problems. Despite this concern, the trend continues as investment and pension funds now join individual investors and sovereign wealth funds seeking to acquire farmland.

It is arguable that the trend of large-scale land investment in Sub-Saharan Africa could not take place without WBG support. The Oakland Institute's (OI) recent field research in 7 African countries uncovers WBG's orchestration of business-friendly environments for investor access to land. From helping attract investors, to shaping policy and law that allows for streamlined and lucrative investor contracts, WBG's agencies clearly enable and promote land investment. OI found little evidence that WBG's strategy to alleviate poverty and improve lives through large-scale land deals in Sub-Saharan Africa was having success on the ground. On the contrary, WBG policies and actions have glossed over critical issues such as human rights, food security, and human dignity for local populations. OI's research findings call for the evaluation and accountability of WBG in its role in promoting land deals that undermine the livelihoods and basic rights of millions of Africans.

World Bank Group and Land Investments

IFC Financing for Agricultural Development

Perhaps the most apparent way in which WBG contributes to the land investment trend is direct financing of agribusiness firms. Its private sector arm, the International Finance Corporation (IFC), in conjunction with its partner organization, the Foreign Investment Advisory Service (FIAS), for instance, is leading the effort to promote private sector investment in developing countries.

IFC's agribusiness investment portfolio has grown significantly in recent years, with investments spanning the sector's value chain. At the end of FY10, the agribusiness portfolio reached $3.9 billion, representing more than 125 projects in 51 countries. In Africa, IFC is the largest multilateral source of loan and equity financing for private sector projects. Through the Africa Agricultural Finance Project (AAFP), an advisory and investment program, it is spurring African banks and other financial institutions to establish or expand lending to the agriculture sector in countries including Central African Republic, the Democratic Republic of Congo, Cote d'Ivoire, Malawi, Nigeria, and Zambia.

IFC's plans are to double funding to agribusiness projects in Sub-Saharan Africa over the next two years, increasing its budget for agriculture to $250 million, from $100 million in 2010. IFC has also expressed that its particular goals for African agribusiness include meeting the needs of the entire value chain, supporting infrastructure creation, and fomenting an enabling legal and regulatory environment.

WBG Non-Lending Activities

While IFC's primary work is private sector financing, in recent years, its work in administering Technical Assistance and Advisory Services (TAAS) has taken on an increasingly important role. TAAS comprises specific projects and initiatives designed to improve client governments' investment climates. This involves creating the conditions necessary to attract foreign investment and facilitating the investment process for investors. Such activities include investment legislation reforms, the reduction of administrative and institutional barriers to investment, the development of investment promotion agencies (IPAs) in these countries, and provision of policy assistance to governments regarding tax, customs, and land laws. Technical assistance and advisory activities may be linked to a specific investment project, or, increasingly, to broader goals such as improving the "legislative environment" for a specific industry.

Land-related "Products"

Within its non-lending activities, WBG administers a number of "products" – specific advisory services tailored to governments' needs to help improve their investment climate. For instance, FIAS's "Access to Land" product provides technical assistance in implementing achievable land-related short-term reforms, such as simplifying and streamlining the approvals for investors to secure land rights and reduce the time and cost for investors to comply with zoning, environmental, and building requirements.

In addition, the "Investing Across Borders (IAB)" project is WBG's global benchmarking initiative that measures the ease of establishing and operating a foreign-owned business. Specifically within the topic of "Accessing Industrial Land," IAB's main indicators include strength of investor lease rights, strength of ownership rights, access to land information, and number of days needed to lease land. In order for countries to rank favorably, their "land markets" must be accessible to investors. For example, procedures for accessing land must be simple, involve short time frames, and require the involvement of few agencies. Countries rank higher if there is no land ceiling (a maximum hectarage for land acquisitions) and if investor incentives are provided (e.g. tax exemptions and duty waivers).

Shaping the Legislative Environment

IFC and FIAS are also providing Technical Assistance to governments in the drafting and revision of laws and policies. WBG officials are directly involved with client government leaders in their policy-making processes with the goal of making legislative environments more investor friendly. In 2007, for example, FIAS assisted the South Sudan government by revising six business laws, including the investment law, which effectively removed what FIAS considered to be inequitable treatment of investors and the requirement for the investment promotion agency to vet potential new investors.

Similarly, in Mozambique, Susan Hume, the World Bank's Country Program Manager expressed in a letter to the government that the general approach of the 2007 Strategy for Improving the Investment Climate in Mozambique should be "to streamline and reduce existing regulatory burdens--so as to be more customer-focused."

Creation and Enhancement of IPAS

IFC and FIAS also work with client governments to create or improve existing Investment Promotion Agencies (IPAs). IFC and FIAS encourage IPAs to streamline and consolidate all investment-related activities to create investor "one-stop shops." In recent years, FIAS has helped to create or bolster IPAs in Sierra Leone, Cape Verde, Senegal, Zambia, and Tanzania, among many others.

WBG directly influences IPAs by providing training sessions and toolkits to host country officials for the creation of these "one-stop shops." WBG's Investment Generation Toolkit, for example, provides step-by-step guidelines for the IPA creation process.

Additionally, WBG provides funding to support the creation of IPAs where they do not exist. The Sierra Leone Investment and Export Promotion Agency (SLIEPA) was established in 2007 and is funded by the UK Department for International Development (DFID) through International Finance Corporation/Foreign Investment Advisory Service. Similarly, the establishment of the Zambia Investment Centre (ZIC), which is part of an amalgamation of agencies that currently form the Zambia Development Agency (ZDA), was a requirement of the 1995 Investment Act, as mandated by the World Bank's PIRC II loan.

The process through which investors must go to acquire land is significantly streamlined, as IPAs assist in the issuing of all necessary licenses, permits, and authorizations for securing desired real estate. Tanzania's IPA, the Tanzania Investment Centre (TIC), is even mandated with identifying "available" land and providing it to investors, in addition to helping investors obtain all necessary permits (article 6 of the Tanzanian Investment Act 1997). The TIC has set up a "land bank," having identified some 2.5 million hectares of land as suitable for investment.

Doing Business Rankings

Investors interested in land are further aided by the WBG's Doing Business project, which provides measures of business regulations for firms in 183 economies and selected cities at the sub-national level. Economies are ranked on their ease of doing business, from 1 to 183, with the index averaging ratings on ten different topics, including "registering property," "enforcing contract," "trading across borders," and "protecting investors." A high ranking on the overall index means the country's regulatory environment is more conducive to the starting and operation of a local firm. WBG often points to Sierra Leone as an example of an impressive Doing Business reformer in Africa, the country having recorded major improvements to its "investment climate."24 Sierra Leone's overall Doing Business ranking increased by 15 points between 2008 and 2010, with key steps taken in the areas of "protecting investors" (up 22 points) and "getting credit" (up 14 points).

The Doing Business system provides a way for potential investors to decide which countries are suitable destinations for overseas farmland investments as the rankings compare countries' regulatory environments, assess the impact of laws and regulations on business activity, and how they make decisions regarding private investments.

MIGA'S Guarantees of Non-Commercial Risk

WBG's Multilateral Investment Guarantee Agency (MIGA) provides political risk insurance (or "guarantees") against certain risks to investments in developing countries, as well as dispute resolution services for guaranteed investments. These guarantees insure foreign investments against a number of risks, including transfer restrictions, expropriation, war or civil disturbance, breach of contract, and the nonhonoring of sovereign financial obligations.

In recent years, MIGA has been increasingly present in the agribusiness sector. It recognizes that while demand for land rises, agribusiness companies face particular challenges related to the economic, political, and environmental aspects of their investments. Countries targeted by investors may have less-than-stable political environments, unclear or incomplete laws on property ownership or restrictions on revenue repatriation. Therefore, MIGA is a key player in promoting land investment, as its political risk guarantees often make the difference for project sponsors and lenders concerned about the safety of their investments – a common concern among those investing in Sub-Saharan Africa (see Table 1 for select MIGA agribusiness projects in Africa).

In addition to its traditional practice of underwriting individual projects, MIGA offers "master contracts of guarantee" specifically for private equity fund investments. A master contract provides up-front pricing to the partners of the fund for a specific period. The fund managers may use this contract to raise funds from institutional investors who are interested in taking the commercial risks associated with these investments but are concerned about noncommercial (political) risks. MIGA underwrites each underlying investment and guarantees the political risks.

MIGA currently has master contracts with three private equity funds that invest in Sub-Saharan Africa, including the African Development Corporation and the Sierra Leone Investment Fund LLC & ManoCap Soros Fund LLC, the latter of which focuses on small agribusiness companies in Sierra Leone. In mid-2010 MIGA also signed a deal providing up to $70 million of political risk coverage and breach of contract coverage for Chayton Atlas's eligible investments in Zambia and Botswana. Chayton is a private equity fund, focused on investing in agribusiness in countries in Southern Africa. According to MIGA's underwriter of the investment, Chayton Atlas was particularly attractive as "agribusiness is a priority sector for MIGA and the World Bank Group."

Case Study: Sierra Leone

Since IFC opened a program office in Sierra Leone in 2003, IFC/FIAS advisory activities and recommended changes to policy and legislation have completely transformed the investment climate, and accordingly, huge investments in Sierra Leone's land market have followed.

FIAS's initial diagnostic study of administrative barriers to investment in the country further led to the establishment of a public-private sector team. Under FIAS guidance, this team formed working groups to formulate and implement a reform program in order to create a "world-class investment climate." Four areas were targeted for reform: (1) business start-up procedures; (2) land and planning; (3) operating procedures, tax, and customs; and (4) institutional reform.

Sierra Leone's IPA, the Sierra Leone Investment and Export Promotion Agency (SLIEPA) – founded with support from IFC/FIAS in 2007 – highlights agriculture as one of its most promising sectors for foreign investment. Its website advertises that Sierra Leone boasts "5.4 million hectares of arable land" and "opportunities for production of biofuels, biolands, and organic foods," "opportunities in agricultural goods and services," and "proven export potential," among others. One MIGA news release seeks to lure investors, stating, "[Sierra Leone] is enjoying a resurgence of interest from investors looking for first-mover advantage. Sierra Leone offers significant potential in agriculture with high levels of rainfall and vast swaths of arable but uncultivated land."

This marketing of Sierra Leone's natural resources has been effective and prompted a rush of foreign investors to start large-scale plantations in recent years. OI research shows that land deals already covered over 500,000 hectares of land in Sierra Leone as of the end of 2010.

WBG and Private Equity Investments in Farmland

WBG is further working in multiple capacities to foment the influx of private equity capital into agricultural land. Its president, Robert B. Zoellick, sees private equity as "a cornerstone of [WBG's] push to encourage growth and development led by the private sector. It is fundamental to building businesses, creating jobs, widening opportunities and establishing a virtuous upward spiral…. Innovative financial instruments…enable the Bank Group's shareholders and donors to get the most development bang for their buck. And they generate very good returns for investors."

Approximately 60 percent of the private equity funds in which the IFC has invested are based in the countries assisted by the WBGs International Development Association (IDA).

A major component of WBG's private equity efforts is agriland investments. In the wake of the food and financial crises, farmland has come to represent a relatively new and untapped alternative asset class in emerging markets. Investor interest in "green assets" can be attributed to appreciating land values and the fact that food and commodity prices are very likely to remain high over the near term. Farmland investments present a way of gaining exposure to soft commodities, such as wheat or corn, but farmland returns are still less volatile than most commodity futures. Annual returns for farmland investments are expected to average 8 to 12 percent, with some riskier countries and/or crops expected to deliver 20 percent.

Africa, in particular, has become a sought-after post-crisis investment destination for investment managers. Investors are regaining confidence in the continent, focusing on Africa's lack of direct involvement with the global market's volatility drivers and trouble hotspots. Despite its traditionally risky, illiquid markets, fund managers are poised to make high returns on the continent: African fund raising could hit a record $8 billion to $10 billion in 2011.

WBG is increasingly active within the farmland asset class. In addition to MIGA's negotiated master contracts of guarantee with three ag-focused private equity funds, IFC has stakes in a number of agriculture-investing private equity funds, including Emerging Capital Partners' AIG African Infrastructure Fund and Citadel Capital's MENA Joint Investment Fund. IFC also committed $20 million to the Global Environment Fund (GEF), a US-based private equity firm focused on forestry in Sub-Saharan Africa – the first of its kind. Zoellick has stated, "We are looking at investments all across the [agribusiness] value chain: property rights, seeds, irrigation, fertilizers, basic technology advancements, financial services, harvesting, storage, getting goods to markets, and processing."

In a key move to support private equity capital flows in developing countries, in 2004, IFC sponsored the creation of EMPEA (the Emerging Markets Private Equity Association), a global membership association whose mission is to catalyze private equity and venture capital investment in emerging markets. EMPEA's 280 members include the leading institutional investors and private equity and venture capital fund managers across developing and developed markets. IFC also holds an annual Global Private Equity Conference, which is now the premier event for investors in the sector.

It is important to note that WBG's interests are in many ways directly aligned with those of private equity funds, owing to the fact that EMPEA's Board of Advisors includes several fund managers whose portfolios include major land deals. For example, Hisham El-Khazindar, a current member of EMPEA's Advisory Council, is the Managing Director and cofounder of Citadel Capital, one of Africa's largest private equity funds. With $8.7 billion in assets currently under management, Citadel has acquired hundreds of thousands of hectares for agribusiness ventures in Kenya, Uganda, Tanzania, and South Sudan. Also on the Advisory Council is Shemara Wikramanayake, head of Macquarie Funds Group, a Sydney-based asset management business. In March 2010, Macquarie Agricultural Funds Management started up the Macquarie Crop Fund to "acquire or lease grain and oilseed properties located in geographically diverse regions of Australia, Brazil and Africa."

Causes for Concern

Whereas WBG's mandate is to "reduce poverty and improve living standards through sustainable development and investment in people," its work largely strays from this mission in that, by promoting investor access to land, it actually tends to threaten rather than improve food security and local livelihoods in developing countries.

The Oakland Institute field investigations found repeated evidence of lost livelihoods as a result of land deals, including forced displacement and resettlement of local people. The development of large-scale plantations are forcing millions of small farmers off ancestral lands and productive small, local food farms in order to make room for export commodities, including agrofuels. In several countries like Mali or Ethiopia, the construction of irrigation infrastructures results in livelihood disruption for farmers and pastoralists, cutting off cattle routes and taking away essential grazing and farming land.

The clearing of forests and fallow land, considered unoccupied, also takes away important sources of food and non-food commodities as well as income for rural communities in Africa, while also jeopardizing the environment and natural resources. Because of their lack of titles and formal ownership of the land, this often happens with little or no compensation for local communities.

In most Sub-Saharan countries, over 96 percent of farmers are small in scale, farming less than 5 hectares (two-thirds of these farm less than one hectare), and small-scale farmers account for over 90 percent of agricultural production. Thus, where farmland is lost to large firms, local food systems and livelihoods are disrupted or destroyed.

In the face of these threats to local populations, WBG does little to critically examine the ways in which the investments may jeopardize local populations on the ground. Despite its official mandate to contribute to the alleviation of poverty,58 IFC's Monitoring and Evaluation (M&E) system includes no information about the effects of their work on poverty and hunger. FIAS measures its overall performance on indicators such as its clients' overall satisfaction, the number of its recommendations implemented, and the number of "Business Enabling Environment" reforms involving at least 10 percent improvement in time/cost and number of procedures and/ or number of licenses required. FIAS indicators for project-specific "impact" include statistics on Gross Domestic Product, gross fixed capital formation, export performance, private investment, and on new business registrations.

"Nowhere within its M&E does FIAS consider, for example, the number of jobs created, changes to hunger and poverty indicators, or the incomes of local populations."

IFC investments are governed by Performance Standards for Social and Environmental Sustainability, a set of policies that define IFC's responsibility in supporting project performance in partnership with clients. These include, for example, standards regarding labor and working conditions, community health and safety, land acquisition and involuntary resettlement, etc. Yet, there is widespread criticism from civil society groups and the Compliance Advisor/Ombudsman (CAO), the compliance mechanism of the IFC, that Performance Standards are unsatisfactory, expressly in the areas of 1) community engagement and "broad community support," 2) transparency, 3) project definition and categorization, 4) demonstrating project-level development impacts, 5) application of the Performance Standards to financial intermediaries and 6) human rights.

With respect to human rights, the CAO has revealed that 62 percent of its investigation cases into IFC activities launched since 2000 involve claims of human rights violations or impacts. Civil society groups are indignant that recent revisions to the Performance Standards "take a step backwards" in terms of human rights. A key concern is that the draft IFC principles undermine the UN Framework on Business and Human Rights, the global standard for how businesses should respect human rights. For example, the draft uses a loose definition of "corporate responsibility to respect human rights" and ignores important concrete measures recommended by the UN Framework.

Failure to include adequate human rights protections in IFC's Performance Standards is of serious concern for an international institution using taxpayers' money. A number of non-governmental groups, including Amnesty International, Bank Information Center, International Accountability Project and the Center for International Environmental Law, consistently critique the standards' lack of inclusion of rights.

The IFC must commit not to support activities that are likely to cause, or contribute to, human rights abuses and, it must, along with,its clients undertake human rights due diligence.